What’s Going On with PhonePe? Penalty, Outages and Its Comeback

India has built its name globally in digital finance arena, today digital payments have become a lifeline for average individuals. PhonePe a renowned digital payment platform over the past few years its facing constant turbulence, from regulatory penalties to technical outages and infrastructure disruption. As PhonePe prepares for its next big jump with an IPO it is essential to understand what went wrong, what the company is doing to tackle it and what this means for users and businesses across India.

RBI Penalty
The Reserve Bank of India (RBI) on September 13, 2025 fined PhonePe ₹21 lakh for not complying with Prepaid Payment Instrument (PPI) guidelines and though the exact violations have not been fully disclosed yet experts believe they relate to KYC protocols and operational standards. The move highlights that regulatory authorities are serious about executing compliance in the booming digital payments sector. For users this means a push towards safer more secure transactions , even if it comes with short term disruptions.
PhonePe’s journey has not been smooth, especially with recurring technical issues:

• May 12, 2025 – A lot of people tried to use the app at the same time and the system was being tested to fix problems because of this many payments did not go through, and some got stuck or didn’t work properly.
• August 7, 2025 – A nationwide UPI outage affected PhonePe alongside competitors like Google Pay and Paytm. Banks reported glitches at their end, and users struggled to make payments during critical times.

These outages kind of exposed PhonePe’s over reliance on existing infrastructure and the need for better redundancy mechanisms. The company has since been investing heavily in upgrading its systems to handle such pressures more efficiently.

One of PhonePe’s toughest challenges came in March 2020, when Yes Bank, one of its key partners, was placed under a moratorium by RBI. A moratorium is a temporary freeze on operations, often imposed to prevent deeper financial crises. Because Yes Bank stopped working, 40% of PhonePe’s UPI transactions dropped means 40 out of 100 payments on PhonePe didn’t go through and many people could not use the app to pay for important things.

March 2020 PhonePe experienced its toughest challenge when Yes Bank which used to be one of PhonePe's key partners placed under a moratorium by the RBI freezing its operation which is often imposed to prevent further financial crises.

PhonePe quickly shifted its backend to ICICI Bank, restoring services and reassuring users. The incident, however, highlighted how dependent fintech companies are on traditional banks for operational continuity.

Despite setbacks PhonePe’s resilience might shine through. PhonePe with over 600 million registered users and around 310 million daily transactions is a market leader that support small businesses and MSMEs, it partnered with SIDBI to launch Digital Udyam Registration, a fully digital platform that helps MSMEs register their businesses and access loans and government schemes more easily. Looking ahead PhonePe is planning to raise $1.5 billion through an initial public offering (IPO) that could value the company at $15 billion. This move is expected to increase investor confidence and support its growth and expansion plans.

For everyday users these developments might have led to few transaction failures but they also point towards a safer more robust payment ecosystem and PhonePe’s efforts to streamline compliance, invest in infrastructure and empower businesses through new services ensure that users and merchants alike benefit from a more reliable platform.

For people who invest money and those who follow new businesses PhonePe’s story shows how it worked hard to solve problems and is now ready to grow even bigger and It also shows how strong and brave India’s digital money world is becoming.